Bharati has expertise in the field of manufacturing offshore vessels. It is also in the process of building a jack-up rig, completion of which would catapult the company into the niche club of shipyards manufacturing off-shore rigs.
The company with the commissioning of its new yards would have the capability to build larger and wider variety of vessels. Apart from this, the company is well-hedged against forex and raw material price fluctuations in turn cushioning its margins and profitability.
Bharati has not accepted substantial new orders since the last 2-3 quarters as it awaits completion of its upcoming capacities and clarity on its delivery slots.
It has a smaller order book and less aggressive growth plans compared to ABG Shipyard. Hence, we believe that a PE multiple of 7x FY2010E Earnings is justified for the company, which is at a discount to that of ABG.
At Rs296, the stock is trading at 7.7x and 6.0x its FY2009E and FY2010E earnings, respectively.
We see value in the stock on account of burgeoning global shipbuilding demand and the play-safe stance of the company, which leads to assurance of steady revenue and earnings growth. We initiate coverage on the stock, with a 12-month TARGET PRICE of Rs346.